ESCALADE INC — Interim / Quarterly Report 2021

Oct 28, 2021

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended October 2, 2021 or

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _ to ___

Commission File Number 0-6966

ESCALADE, INCORPORATED

(Exact name of registrant as specified in its charter)

Indiana (State of incorporation) 13-2739290 (I.R.S. EIN)

817 Maxwell Ave , Evansville , Indiana (Address of principal executive office) 47711 (Zip Code)

812 - 467-1358

(Registrant's Telephone Number)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of Exchange on which registered
Common Stock, No Par Value	ESCA	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐	Smaller reporting company ☒ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at October 22, 2021
Common, no par value	13,489,332

1

INDEX

Part I.	Financial Information:	Page No.
Item 1 -	Financial Statements:
	Consolidated Condensed Balance Sheets as of October 2, 2021, December 26, 2020, and October 3, 2020	3
	Consolidated Condensed Statements of Operations for the Three Months and Nine Months Ended October 2, 2021 and October 3, 2020	4
	Consolidated Condensed Statements of Stockholders’ Equity for the Three Months and Nine Months Ended October 2, 2021 and October 3, 2020	5
	Consolidated Condensed Statements of Cash Flows for the Nine Months Ended October 2, 2021 and October 3, 2020	6
	Notes to Consolidated Condensed Financial Statements	7
Item 2 -	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3 -	Quantitative and Qualitative Disclosures About Market Risk	15
Item 4 -	Controls and Procedures	16
Part II.	Other Information
Item 2 -	Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 6 -	Exhibits	18
	Signature	18

2

PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

ESCALADE, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

All Amounts in Thousands Except Share Information	October 2, 2021	December 26, 2020	October 3, 2020
	(Unaudited)	(Audited)	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$ 6,492	$ 3,505	$ 6,811
Receivables, less allowance of $ 636 ; $ 896 ; and $ 798 ; respectively	68,849	65,280	63,750
Inventories	91,755	72,488	63,738
Prepaid expenses	6,527	4,068	2,580
Prepaid income tax	--	57	--
TOTAL CURRENT ASSETS	173,623	145,398	136,879
Property, plant and equipment, net	24,000	18,232	16,029
Operating lease right-of-use assets	2,500	1,608	1,271
Intangible assets, net	21,207	22,645	17,739
Goodwill	32,695	32,695	26,749
Other assets	131	127	49
TOTAL ASSETS	$ 254,156	$ 220,705	$ 198,716
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt	$ 7,143	$ --	$ --
Trade accounts payable	25,071	20,947	32,102
Accrued liabilities	18,100	24,271	18,702
Income tax payable	124	--	1,675
Current operating lease liabilities	990	854	693
TOTAL CURRENT LIABILITIES	51,428	46,072	53,172
Other Liabilities:
Long‑term debt	51,874	30,073	--
Deferred income tax liability	4,193	4,193	3,537
Operating lease liabilities	1,493	763	591
Other liabilities	448	448	387
TOTAL LIABILITIES	109,436	81,549	57,687
Stockholders' Equity:
Preferred stock:
Authorized 1,000,000 shares; no par value, none issued
Common stock:
Authorized 30,000,000 shares; no par value, issued and outstanding – 13,557,879 ; 13,919,380 ; and 14,169,404 ; shares respectively	13,558	13,919	14,169
Retained earnings	131,162	125,237	126,860
TOTAL STOCKHOLDERS' EQUITY	144,720	139,156	141,029
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 254,156	$ 220,705	$ 198,716

See notes to Consolidated Condensed Financial Statements.

3

ESCALADE, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

All Amounts in Thousands Except Per Share Data	Three Months Ended — October 2, 2021	October 3, 2020		October 2, 2021		October 3, 2020
Net sales	$ 81,298	$	78,069	$	240,168	$	198,882
Costs and Expenses
Cost of products sold	62,992		54,548		179,355		141,911
Selling, administrative and general expenses	10,202		10,374		33,888		29,752
Amortization	432		332		1,438		1,108
Operating Income	7,672		12,815		25,487		26,111
Other Income (Expense)
Interest expense	( 414	)	( 44	)	( 1,035	)	( 148	)
Other income	68		40		124		108
Income Before Income Taxes	7,326		12,811		24,576		26,071
Provision for Income Taxes	1,360		2,625		5,042		5,224
Net Income	$ 5,966	$	10,186	$	19,534	$	20,847
Earnings Per Share Data:
Basic earnings per share	$ 0.44	$	0.72	$	1.41	$	1.48
Diluted earnings per share	$ 0.43	$	0.71	$	1.40	$	1.47
Dividends declared	$ 0.14	$	0.140	$	0.42	$	0.390

See notes to Consolidated Condensed Financial Statements.

4

ESCALADE, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)

All Amounts in Thousands	Common Stock — Shares	Amount		Earnings		Total
Balances at July 11, 2020	14,154	$	14,154	$	118,410	$	132,564
Net income					10,186		10,186
Expense of stock options and restricted stock units					263		263
Settlement of restricted stock units	15		15		( 15	)	--
Dividends declared					( 1,984	)	( 1,984	)
Balances at October 3, 2020	14,169	$	14,169	$	126,860	$	141,029
Balances at December 28, 2019	14,215	$	14,215	$	111,955	$	126,170
Net income					20,847		20,847
Expense of stock options and restricted stock units					756		756
Settlement of restricted stock units	51		51		( 51	)	--
Issuance of restricted stock awards	35		35		( 35	)	--
Dividends declared					( 5,515	)	( 5,515	)
Purchase of stock	( 142	)	( 142	)	( 1,184	)	( 1,326	)
Stock issued to directors as compensation	10		10		87		97
Balances at October 3, 2020	14,169	$	14,169	$	126,860	$	141,029

All Amounts in Thousands	Common Stock — Shares	Amount		Earnings		Total
Balances at July 10, 2021	13,779	$	13,779	$	131,354	$	145,133
Net income					5,966		5,966
Expense of stock options and restricted stock units					229		229
Dividends declared					( 1,917	)	( 1,917	)
Purchase of stock	( 221	)	( 221	)	( 4,470	)	( 4,691	)
Stock issued to directors as compensation
Balances at October 2, 2021	13,558	$	13,558	$	131,162	$	144,720
Balances at December 26, 2020	13,919	$	13,919	$	125,237	$	139,156
Net income					19,534		19,534
Expense of stock options and restricted stock units					666		666
Exercise of stock options	10		10		134		144
Settlement of restricted stock units	46		46		( 46	)	--
Dividends declared					( 5,804	)	( 5,804	)
Purchase of stock	( 423	)	( 423	)	( 8,688	)	( 9,111	)
Stock issued to directors as compensation	6		6		129		135
Balances at October 2, 2021	13,558	$	13,558	$	131,162	$	144,720

See notes to Consolidated Condensed Financial Statements.

5

ESCALADE, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

All Amounts in Thousands	Nine Months Ended — October 2, 2021	October 3, 2020
Operating Activities:
Net income	$ 19,534	$	20,847
Depreciation and amortization	3,935		3,252
Provision for doubtful accounts	( 224	)	394
Stock-based compensation	666		756
Gain on disposal of property and equipment	( 27	)	( 2	)
Adjustments necessary to reconcile net income to net cash used by operating activities	( 26,933	)	( 14,378	)
Net cash provided (used) by operating activities	( 3,049	)	10,869
Investing Activities:
Purchase of property and equipment	( 8,281	)	( 3,064	)
Proceeds from sale of property and equipment	43		3
Payment on note payable related to an acquisition	--		( 135	)
Net cash used by investing activities	( 8,238	)	( 3,196	)
Financing Activities:
Proceeds from issuance of long-term debt	192,792		8,493
Payments on long-term debt	( 163,849	)	( 8,493	)
Proceeds from exercise of stock options	144		--
Deferred financing fees	( 33	)	--
Purchase of stock	( 9,111	)	( 1,326	)
Cash dividends paid	( 5,804	)	( 5,515	)
Director stock compensation	135		97
Net cash provided (used) by financing activities	14,274		( 6,744	)
Net increase in cash and cash equivalents	2,987		929
Cash and cash equivalents, beginning of period	3,505		5,882
Cash and cash equivalents, end of period	$ 6,492	$	6,811

See notes to Consolidated Condensed Financial Statements.

6

ESCALADE, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Note A – Summary of Significant Accounting Policies

Presentation of Consolidated Condensed Financial Statements – The significant accounting policies followed by the Company and its wholly owned subsidiaries for interim financial reporting are consistent with the accounting policies followed for its annual financial reporting. All adjustments that are of a normal recurring nature and are in the opinion of management necessary for a fair statement of the results for the periods reported have been included in the accompanying consolidated condensed financial statements. The consolidated condensed balance sheet of the Company as of December 26, 2020 has been derived from the audited consolidated balance sheet of the Company as of that date. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted. These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10 -K annual report for 2020 filed with the Securities and Exchange Commission.

Note B ‑ Seasonal Aspects

The results of operations for the three and nine month periods ended October 2, 2021 and October 3, 2020 are not necessarily indicative of the results to be expected for the full year.

Note C ‑ Inventories

In thousands	October 2, 2021	December 26, 2020	October 3, 2020
Raw materials	$ 10,160	$ 9,121	$ 8,446
Work in progress	3,873	3,538	4,217
Finished goods	77,722	59,829	51,075
	$ 91,755	$ 72,488	$ 63,738

Note D – Fair Values of Financial Instruments

The following methods were used to estimate the fair value of all financial instruments recognized in the accompanying balance sheets at amounts other than fair values.

Cash and Cash Equivalents

Fair values of cash and cash equivalents approximate cost due to the short period of time to maturity.

Long-term Debt

Fair values of long-term debt is estimated based on borrowing rates currently available to the Company for bank loans with similar terms and maturities and determined through the use of a discounted cash flow model.

The following table presents estimated fair values of the Company’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall in accordance with FASB ASC 825 at October 2, 2021, December 26, 2020 and October 3, 2020.

7

October 2, 2021 In thousands	Carrying Amount	Fair Value Measurements Using — Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Financial assets
Cash and cash equivalents	$ 6,492	$ 6,492	$ --	$ --
Financial liabilities
Current portion of long-term debt	$ 7,143	$ --	$ 7,143	$ --
Long-term debt	$ 51,874	$ --	$ 51,874	$ --

December 26, 2020 In thousands	Carrying Amount	Fair Value Measurements Using — Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Financial assets
Cash and cash equivalents	$ 3,505	$ 3,505	$ --	$ --
Financial liabilities
Long-term debt	$ 30,073	$ --	$ 30,073	$ --

October 3, 2020 In thousands	Carrying Amount	Fair Value Measurements Using — Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Financial assets
Cash and cash equivalents	$ 6,811	$ 6,811	$ --	$ --

Note E – Stock Compensation

The fair value of stock-based compensation is recognized in accordance with the provisions of FASB ASC 718, Stock Compensation .

During the nine months ended October 2, 2021 and pursuant to the 2017 Incentive Plan, in lieu of cash payments of director fees, the Company awarded to certain directors 5,683 shares of common stock. During the nine months ended October 2, 2021, the Company awarded 13,332 restricted stock units to directors and 37,283 restricted stock units to employees. The restricted stock units awarded to directors time vest over two years ( one -half one year from grant date and one -half two years from grant date) provided that the director is still a director of the Company at the vest date. Director restricted stock units are subject to forfeiture, except for termination of services as a result of retirement, death or disability, if on the vesting date the director no longer holds a position with the Company. The 2021 restricted stock units awarded to employees time vest over three years ( one - third one year from grant, one - third two years from grant and one - third three years from grant) provided that the employee is still employed by the Company on the vesting date.

For the three and nine months ended October 2, 2021, the Company recognized stock based compensation expense of $ 229 thousand and $ 666 thousand, respectively compared to stock based compensation expense of $ 263 thousand and $ 756 thousand for the same periods in the prior year. At October 2, 2021 and October 3, 2020, respectively, there was $ 0.9 million and $ 1.2 million in unrecognized stock-based compensation expense related to non-vested stock awards.

8

Note F ‑ Segment Information

In thousands	For the Three Months Ended October 2, 2021 — Sporting Goods	Corp.	Total
Revenues from external customers	$ 81,298	$ --	$	81,298
Operating income (loss)	8,087	( 415	)	7,672
Net income	5,614	352		5,966

In thousands	As of and for the Nine Months Ended October 2, 2021 — Sporting Goods	Corp.	Total
Revenues from external customers	$ 240,168	$ --	$	240,168
Operating income (loss)	27,049	( 1,562	)	25,487
Net income	18,956	578		19,534
Total assets	$ 246,777	$ 7,379	$	254,156

In thousands	For the Three Months Ended October 3, 2020 — Sporting Goods	Corp.	Total
Revenues from external customers	$ 78,069	$ --	$	78,069
Operating income (loss)	13,177	( 362	)	12,815
Net income	9,554	632		10,186

In thousands	As of and for the Nine Months Ended October 3, 2020 — Sporting Goods	Corp.	Total
Revenues from external customers	$ 198,882	$ --	$	198,882
Operating income (loss)	27,640	( 1,529	)	26,111
Net income	20,017	830		20,847
Total assets	$ 190,309	$ 8,407	$	198,716

Note G – Dividend Payment

On September 14, 2021, the Company paid a quarterly dividend of $ 0.14 per common share to all shareholders of record on September 7, 2021. The total amount of the dividend was approximately $ 1.9 million and was charged against retained earnings.

On June 8, 2021, the Company paid a quarterly dividend of $ 0.14 per common share to all shareholders of record on June 1, 2021. The total amount of the dividend was approximately $ 1.9 million and was charged against retained earnings.

On March 24, 2021, the Company paid a quarterly dividend of $ 0.14 per common share to all shareholders of record on March 17, 2021 ( the amount was funded to the transfer agent by the Company on March 19, 2021). The total amount of the dividend was approximately $ 1.9 million and was charged against retained earnings.

9

Note H ‑ Earnings Per Share

The shares used in computation of the Company’s basic and diluted earnings per common share are as follows:

In thousands	Three Months Ended — October 2, 2021	October 3, 2020	Nine Months Ended — October 2, 2021	October 3, 2020
Weighted average common shares outstanding	13,706	14,128	13,821	14,117
Dilutive effect of stock options and restricted stock units	102	137	102	105
Weighted average common shares outstanding, assuming dilution	13,808	14,265	13,923	14,222

Stock options that are anti-dilutive as to earnings per share and unvested restricted stock units which have a market condition for vesting that has not been achieved are ignored in the computation of dilutive earnings per share. The number of stock options and restricted stock units that were excluded in 2021 and 2020 were 11,900 and 57,569 , respectively.

Note I – New Accounting Standards and Changes in Accounting Principles

With the exception of that discussed below, there have been no recent accounting pronouncements or changes in accounting pronouncements during the three and nine months ended October 2, 2021, as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10 -K for the fiscal year ended December 26, 2020, that are of significance, or potential significance to the Company.

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019 - 12, Income Taxes (Topic 740 ): Simplifying Accounting for Income Taxes , which removes certain exceptions to the general principles of Topic 740, Accounting for Income Taxes (“ASC 740” ) and is intended to improve consistency and simplify GAAP in several other areas of ASC 740 by clarifying and amending existing guidance. The Company adopted this standard on December 27, 2020 and the adoption did not have a material impact on its consolidated financial statements.

Note J – Revenue from Contracts with Customers

Revenue Recognition – Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally this occurs with the transfer of control of our goods at a point in time based on shipping terms and transfer of title. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods. Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. Shipping and handling fees charged to customers are reported within revenue.

Gross-to-net sales adjustments – We recognize revenue net of various sales adjustments to arrive at net sales as reported on the statement of operations. These adjustments are referred to as gross-to-net sales adjustments and primarily fall into one of three categories: returns, warranties and customer allowances.

Returns – The Company records an accrued liability and reduction in sales for estimated product returns based upon historical experience. An accrued liability and reduction in sales is also recorded for approved return authorizations that have been communicated by the customer.

Warranties – Limited warranties are provided on certain products for varying periods. We record an accrued liability and reduction in sales for estimated future warranty claims based upon historical experience and management’s estimate of the level of future claims. Changes in the estimated amounts recognized in prior years are recorded as an adjustment to the accrued liability and sales in the current year.

10

Customer Allowances – Customer allowances are common practice in the industries in which the Company operates. These agreements are typically in the form of advertising subsidies, volume rebates and catalog allowances and are accounted for as a reduction to gross sales. The Company reviews such allowances on an ongoing basis and accruals are adjusted, if necessary, as additional information becomes available.

Disaggregation of Revenue – We generate revenue from the sale of widely recognized sporting goods brands in basketball goals, archery, indoor and outdoor game recreation and fitness products. These products are sold through multiple sales channels that include: mass merchants, specialty dealers, key on-line retailers (“E-commerce”) and international. The following table depicts the disaggregation of revenue according to sales channel:

All Amounts in Thousands	Three Months Ended — October 2, 2021	October 3, 2020	Nine Months Ended — October 2, 2021	October 3, 2020
Gross Sales by Channel:
Mass Merchants	$ 41,792	$ 36,234	$ 93,298	$ 77,418
Specialty Dealers	19,170	21,741	73,347	57,666
E-commerce	25,116	25,172	86,053	78,242
International	2,259	2,637	9,182	6,129
Other	883	598	2,469	1,669
Total Gross Sales	89,220	86,382	264,349	221,124
Less: Gross-to-Net Sales Adjustments
Returns	1,283	2,117	5,531	5,538
Warranties	590	376	1,703	1,152
Customer Allowances	6,049	5,820	16,947	15,552
Total Gross-to-Net Sales Adjustments	7,922	8,313	24,181	22,242
Total Net Sales	$ 81,298	$ 78,069	$ 240,168	$ 198,882

Note K – Leases

We have operating leases for office, manufacturing and distribution facilities as well as for certain equipment. Our commenced leases have remaining lease terms of 1 year to 6 years. As of October 2, 2021, the Company has not entered into any lease arrangements classified as a finance lease.

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities and operating lease liabilities on our consolidated balance sheet. The Company has elected an accounting policy to not recognize short-term leases ( one year or less) on the balance sheet. The Company also elected the package of practical expedients which applies to leases that commenced before the adoption date. By electing the package of practical expedients, the Company did not need to reassess the following; whether any existing contracts are or contain leases, the lease classification for any existing leases and initial direct costs for any existing leases.

11

ROU assets and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. When the implicit rate of the lease is not provided or cannot be determined, we use our incremental borrowing rate based on the information available at the commencement date to determine the present value of future payments. Lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise those options. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Components of lease expense and other information as follows:

All Amounts in Thousands	Three Months Ended — October 2, 2021	October 3, 2020	Nine Months Ended — October 2, 2021	October 3, 2020
Lease Expense
Operating Lease Cost	$ 433	$ 197	$ 1,151	$ 610
Short-term Lease Cost	330	137	1,361	411
Variable Lease Cost	101	52	304	169
Total Operating Lease Cost	$ 864	386	$ 2,816	$ 1,190
Operating Lease – Operating Cash Flows	$ 434	$ 182	$ 1,050	$ 557
New ROU Assets – Operating Leases	$ 1,189	$ 56	$ 2,329	$ 744

Other information about lease amounts recognized in our consolidated financial statements is summarized as follows:

All Amounts in Thousands	Nine Months Ended — October 2, 2021	October 3, 2020
Weighted Average Remaining Lease Term – Operating Leases (years)	3.93	2.40
Weighted Average Discount Rate – Operating Leases	5.00 %	5.00 %

Future minimum lease payments under non-cancellable leases as of October 2, 2021 were as follows:

All Amounts in Thousands — Year 1	$ 325
Year 2	884
Year 3	405
Year 4	336
Year 5	312
Thereafter	486
Total future minimum lease payments	2,748
Less imputed interest	( 265	)
Total	$ 2,483
Reported as of October 2, 2021
Current operating lease liabilities	990
Long-term operating lease liabilities	1,493
Total	$ 2,483

As of October 2, 2021, we have entered into a lease for additional warehouse and operations which has not yet commenced. Although the location is currently under construction, we do not control the building during construction, and are thus not deemed to be the owner during construction. Amounts in the table above exclude legally binding minimum lease payments for the lease signed but not yet commenced of $ 9.9 million.

Note L – Commitments and Contingencies

The Company is involved in litigation arising in the normal course of business. The Company does not believe that the disposition or ultimate resolution of existing claims or lawsuits will have a material adverse effect on the business or financial condition of the Company.

12

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This report contains forward-looking statements relating to present or future trends or factors that are subject to risks and uncertainties. These risks include, but are not limited to: specific and overall impacts of the COVID-19 global pandemic on Escalade’s financial condition and results of operations; Escalade’s plans and expectations surrounding the transition to its Interim Chief Executive Officer and all potential related effects and consequences; the impact of competitive products and pricing; product demand and market acceptance; new product development; Escalade’s ability to achieve its business objectives, especially with respect to its Sporting Goods business on which it has chosen to focus; Escalade’s ability to successfully achieve the anticipated results of strategic transactions, including the integration of the operations of acquired assets and businesses and of divestitures or discontinuances of certain operations, assets, brands, and products; the continuation and development of key customer, supplier, licensing and other business relationships; Escalade’s ability to develop and implement our own direct to consumer e-commerce distribution channel; Escalade’s ability to successfully negotiate the shifting retail environment and changes in consumer buying habits; the financial health of our customers; disruptions or delays in our business operations, including without limitation disruptions or delays in our supply chain, arising from political unrest, war, labor strikes, natural disasters, public health crises such as the coronavirus pandemic, and other events and circumstances beyond our control; Escalade’s ability to control costs; Escalade’s ability to successfully implement actions to lessen the potential impacts of tariffs and other trade restrictions applicable to our products and raw materials, including impacts on the costs of producing our goods, importing products and materials into our markets for sale, and on the pricing of our products; general economic conditions; fluctuation in operating results; changes in foreign currency exchange rates; changes in the securities markets; Escalade’s ability to obtain financing and to maintain compliance with the terms of such financing; the availability, integration and effective operation of information systems and other technology, and the potential interruption of such systems or technology; risks related to data security of privacy breaches; and other risks detailed from time to time in Escalade’s filings with the Securities and Exchange Commission. Escalade’s future financial performance could differ materially from the expectations of management contained herein. Escalade undertakes no obligation to release revisions to these forward-looking statements after the date of this report.

Overview

Escalade, Incorporated (Escalade, the Company, we, us or our) is focused on growing its Sporting Goods business through organic growth of existing categories, strategic acquisitions, and new product development. The Sporting Goods business competes in a variety of categories including basketball goals, archery, pickleball, billiards, indoor and outdoor game recreation, water sports, and fitness products. Strong brands and on-going investment in product development provide a solid foundation for building customer loyalty and continued growth.

Within the sporting goods industry, the Company has successfully built a robust market presence in several niche markets. This strategy is heavily dependent on expanding our customer base, barriers to entry, strong brands, excellent customer service and a commitment to innovation. A key strategic advantage is the Company’s established relationships with major customers that allow the Company to bring new products to market in a cost effective manner while maintaining a diversified portfolio of products to meet the demands of consumers. In addition to strategic customer relations, the Company has substantial manufacturing and import experience that enables it to be a low cost supplier.

To enhance growth opportunities, the Company has focused on promoting new product innovation and development and brand marketing. In addition, the Company has embarked on a strategy of acquiring companies or product lines that complement or expand the Company's existing product lines or provide expansion into new or emerging categories in sporting goods. A key objective is the acquisition of product lines with barriers to entry that the Company can take to market through its established distribution channels or through new market channels. Significant synergies are achieved through assimilation of acquired product lines into the existing Company structure. The Company also sometimes divests or discontinues certain operations, assets, brands, and products that do not perform to the Company's expectations or no longer fit with the Company's strategic objectives.

Management believes that key indicators in measuring the success of these strategies are revenue growth, earnings growth, new product introductions, and the expansion of channels of distribution.

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COVID-19 Pandemic

The novel coronavirus (COVID-19) pandemic continued to affect the Company’s operations through the third quarter of 2021 and may continue to do so indefinitely thereafter. Increased customer demand the Company experienced through 2020, likely caused in part by consumers remaining home to limit the spread of COVID-19, has carried over into the 2021 fiscal year. While the Company continues to meet these demands through accelerated ordering schedules and increased inventory, a substantial decrease in customer demand or slower payments by the Company’s mass merchants, specialty dealers or other customers could adversely impact the Company’s liquidity. All of these factors may have far reaching impacts on the Company’s business, operations, and financial results and conditions, directly and indirectly, including without limitation impacts on the health of the Company’s management and employees, manufacturing, distribution, marketing and sales operations, customer and consumer behaviors, and on the overall economy. The scope and nature of these impacts, most of which are beyond the Company’s control, continue to evolve and the outcomes are uncertain. In particular, uncertainty concerning the ongoing severity of the pandemic, potential government actions in response to the pandemic, the length of time it takes for normal economic operating conditions to resume, and potential changes in consumer habits following the lifting of COVID restrictions, all contribute to a volatile environment for conducting business.

Due to the above circumstances and as described generally in this Form 10-Q, the Company’s results of operations for the period ended October 2, 2021 are not necessarily indicative of the results to be expected for fiscal year 2021. Management cannot predict the full impact of the COVID-19 pandemic on the Company’s sales channels, supply chain, manufacturing and distribution nor to economic conditions generally, including the effects on consumer spending. The ultimate extent of the effects of the COVID-19 pandemic on the Company is highly uncertain and will depend on future developments, and such effects could exist for an extended period of time even after the pandemic ends.

Results of Operations

The following schedule sets forth certain consolidated statement of operations data as a percentage of net revenue:

October 2, 2021	October 3, 2020	October 2, 2021	October 3, 2020
Net revenue	100.0 %	100.0 %	100.0 %	100.0 %
Cost of products sold	77.5 %	69.9 %	74.7 %	71.4 %
Gross margin	22.5 %	30.1 %	25.3 %	28.6 %
Selling, administrative and general expenses	12.6 %	13.3 %	14.1 %	15.0 %
Amortization	0.5 %	0.4 %	0.6 %	0.5 %
Operating income	9.4 %	16.4 %	10.6 %	13.1 %

Revenue and Gross Margin

Sales increased by 4.1% for the third quarter of 2021, compared with the same period in the prior year. The increase in sales was driven by continued demand for our products, primarily in the archery and games product lines. For the first nine months of 2021, sales were up 20.8% compared to prior year.

The overall gross margin percentage decreased to 22.5% for the third quarter of 2021, compared to 30.1% for 2020. Gross margin was negatively impacted by higher transportation expenses, raw material costs, currency exchange rates, increased wage pressure, and inventory handling costs.

Gross margin percentage decreased to 25.3% for the first nine months of 2021, compared to 28.6% for the same period in the prior year.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (SG&A) were $10.2 million for the third quarter of 2021 compared to $10.4 million for the same period in the prior year, a decrease of $0.2 million or 1.7%. SG&A as a percent of sales is 12.6% for the third quarter of 2021 compared with 13.3% for the same period in the prior year. For the first nine months of 2021, SG&A were $33.9 million compared to $29.8 million for the same period in 2020, an increase of $4.1 million or 13.9%. As a percent of sales, SG&A is 14.1% for the first nine months of 2021 compared with 15.0% for the same period in the prior year.

Provision for Income Taxes

The effective tax rate for the first nine months of 2021 was 20.5% compared to 20.0% for the same period last year.

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Financial Condition and Liquidity

Total debt at the end of the first nine months of 2021 was $59.0 million, an increase of $28.9 million from December 26, 2020. The following schedule summarizes the Company’s total debt:

In thousands	October 2, 2021	December 26, 2020	October 3, 2020
Current portion of long-term debt	$ 7,143	$ --	$ --
Long term debt	$ 51,874	$ 30,073	$ --

As a percentage of stockholders’ equity, total debt was 40.8%, 21.6% and zero at October 2, 2021, December 26, 2020, and October 3, 2020 respectively.

On July 7, 2021, the Company and its wholly owned subsidiary, Indian Industries, Inc. (“Indian”) entered into the Fourth Amendment dated as of July 7, 2021 (the “Fourth Amendment”) to the 2019 Restated Credit Agreement dated as of January 21, 2019 among the Company, Indian, each of their domestic subsidiaries, and Chase, as Administrative Agent and as Lender (the “Lender”). Under the terms of the Fourth Amendment, the Lender extended a $50.0 million term loan to the Company and reduced the maximum availability under the senior revolving credit facility from $75.0 million to $50.0 million. The maturity date of the term loan is July 7, 2026 and the maturity date of the revolving credit facility likewise was extended to July 7, 2026. The Company may prepay the revolving credit facility, in whole or in part, and reborrow prior to the revolving loan maturity date. The Company’s indebtedness under the Credit Agreement continues to be collateralized by liens on all of the present and future equity of each of the Company’s domestic subsidiaries and substantially all of the assets of the Company (excluding real estate).

The Company funds working capital requirements, shareholder dividends, and stock repurchases through operating cash flows and revolving credit agreements with its bank. The Company expects to have access to adequate levels of revolving credit to meet growth needs.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Required.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Escalade maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Interim Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in Rules 13a-15(e) and 15d-15(e). In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, could provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Interim Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, the Company’s Interim Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

Management of the Company has evaluated, with the participation of the Company’s Interim Chief Executive Officer and Chief Financial Officer, changes in the Company’s internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the third quarter of 2021.

There have been no changes to the Company’s internal control over financial reporting that occurred since the beginning of the Company’s first quarter of 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS.

None.

Item 1A. RISK FACTORS.

As of the date of this filing, there have been no material changes in our risk factors from those disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 26, 2020.

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Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

c) Issuer Purchases of Equity Securities

Period — Share purchases prior to 7/10/2021 under the current repurchase program.	1,862,975	$12.24	1,862,975	$10,167,563
Third quarter purchases:
7/11/2021-8/7/2021	46,046	$22.90	1,909,021	$9,113,132
8/8/2021-9/4/2021	33,222	$22.95	1,942,243	$8,350,693
9/5/2021-10/2/2021	142,342	$20.20	2,084,585	$5,475,786
Total share purchases under the current program	2,084,585	$13.19	2,084,585	$5,475,786

The Company has one stock repurchase program which was established in February 2003 by the Board of Directors and which initially authorized management to expend up to $3,000,000 to repurchase shares on the open market as well as in private negotiated transactions. In February 2005, February 2006, August 2007 and February 2008 the Board of Directors increased the remaining balance on this plan to its original level of $3,000,000. In September 2019, the Board of Directors increased the stock repurchase program from $3,000,000 to $5,000,000. In December 2020, the Board of Directors increased the stock repurchase program to $15,000,000. From its inception date through October 2, 2021, the Company has repurchased 2,084,585 shares of its common stock under this repurchase program for an aggregate price of $27,490,151. The repurchase program has no termination date and there have been no share repurchases that were not part of a publicly announced program.

Item 3. DEFAULTS UPON SENIOR SECURITIES.

None.

Item 4. MINE SAFETY DISCLOSURES.

Not applicable.

Item 5. OTHER INFORMATION.

None.

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Item 6. EXHIBITS

Number	Description
3.1	Articles of Incorporation of Escalade, Incorporated. Incorporated by reference from the Company’s 2007 First Quarter Report on Form 10-Q.
3.2	Amended By-laws of Escalade, Incorporated, as amended April 22, 2014. Incorporated by reference from the Company’s 2014 First Quarter Report on Form 10-Q.
31.1	Chief Executive Officer Rule 13a-14(a)/15d-14(a) Certification.
31.2	Chief Financial Officer Rule 13a-14(a)/15d-14(a) Certification.
32.1	Chief Executive Officer Section 1350 Certification.
32.2	Chief Financial Officer Section 1350 Certification.
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.INS	Inline XBRL Instance Document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ESCALADE, INCORPORATED
Date: October 28, 2021	/s/ Stephen R. Wawrin
	Vice President and Chief Financial Officer
	(On behalf of the registrant and in his
	capacities as Principal Financial Officer
	and Principal Accounting Officer)

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